Four EU nations ban short-selling on banking stocks

 
Traders in Paris French banking shares have been most affected by the recent market turbulence

France, Italy, Spain and Belgium have banned short-selling of the shares of banks and other financial companies.

It follows sharp gains and losses in bank stocks in recent days, especially in France, on the level of their exposure to eurozone government debt.

Societe Generale has been the worst affected by the volatility, being forced on Wednesday to deny that its financial stability was at risk.

In short-selling, traders profit from bets on the fall in a share price.

The practice has been blamed for increasing recent market instability.

Short-sellers usually borrow shares or bonds, sell them, then buy them back when the stock falls - pocketing the difference.

"Naked" short-selling is when a trader sells financial instruments he has not yet borrowed.

All forms of short-selling are included in the ban.

'Irrational fears'

The announcement was made both by the European Union's markets supervisor, ESMA, and the four national markets authorities.

France's agency, the AMF, said it was banning short-selling on 11 banking and insurance stocks for 15 days, including France's three largest banks, Societe Generale, BNP Paribas and Credit Agricole.

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Precedent suggests a short-selling ban does not change the fundamentals”

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In Thursday trading on Societe Generale's share price started up 8%, before falling by the same amount, and then recovering to finish 3% higher.

Societe Generale chief executive Frederic Oudea said the speculation about his bank was "absolutely rubbish".

Mr Oudea also spoke to France Info radio. "People are scared," he said, "so the tiniest information touches off irrational fears. To our clients, we have to tell them that these rumours are baseless and that they can have confidence in Societe Generale."

Spain's market regulator, the CNMV, also said its ban would be in place for 15 days. It added that it could also extend the period if required.

"The situation of extreme volatility in European stock markets, especially for shares of financial entities, is clearly affecting the stability of the markets and can disrupt their ordered functioning," it said in a statement.

Spanish banks included in the ban are Santander, BBVA, Sabadell, Bankinter, Banco Popular, and Banca Civica.

Greece banned short-selling on Monday.

Investors are concerned about European banks, because of their large exposure to the government debt of highly indebted eurozone countries such as Greece.

The fear is that the banks will have to write-down the value of their holdings in the government bonds of these nations.

French banks are the most exposed, hence they have been the worst affected by the market turmoil of recent days.

French President Nicolas Sarkozy and German Chancellor Angela Merkel are meeting on Tuesday to discuss solutions to Europe's financial difficulties.

 

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  • rate this
    0

    Comment number 41.

    16. Mahesh Ashra
    49 MINUTES AGO
    #3
    Shorting is not 'selling something you don't own'. It is not fraud. A shorter borrows shares and sells them on the market.
    -
    Bit of an oxymoron that.

    Your comparison of a short seller selling something they have borrowed and then having to buy it back, with a shop keeper who buys on credit is ridiculous.

  • rate this
    -1

    Comment number 40.

    The 'short dealers' are in the same league as the looters we've seen on our streets recently. They're also looters & should face the full force of the law for their crimes. I say to David Cameron, change the law and then "Lock them up. Stop their bonuses, & remove their off-shore tax havens" Then print their photo's online & in the Press and shame them in the same way as those now facing justice.

  • rate this
    0

    Comment number 39.

    Although I have no problem with banning short selling, I dont think it will make the slightest difference. The shares were being sold because many believed their value was overstated as the banks have too many soveriegn bad debt liabilities. The dominos are all lined up. It is just a matter of time before the Euro collapses now, and with it will go many governments and banks in the Euro area.

  • rate this
    +2

    Comment number 38.

    >>"Naked" short-selling is when a trader sells financial instruments he has not yet borrowed.
    Now that's a complete absurd, isn't it? Not only short selling, but all forms of gambling should be banned altogether. On stock exchanges it should be allowed to trade only with shares, and goods which are to be physically delivered from the seller to the buyer. The rest is a virtual reality.

  • rate this
    +4

    Comment number 37.

    It's gambling AND profiteering. The latter is an illegal practice, so why do we allow short selling. It should be banned... PERIOD!

    Anyone out there who can write a good government e-petition?

  • rate this
    +1

    Comment number 36.

    I seem to remember from my days as a bank clerk that the current holder of goods had no greater title to them than the previous holder. So if I buy borrowed shares, I don't own them either. Oh, but silly me - this is modern banking/investment/gambling, the same parasites that happily make a profit on next year's wheat price while people starve.

  • rate this
    +2

    Comment number 35.

    As always in the EU when in doubt shoot the messenger rather than listen to message.

    This makes no difference because market will simply use derivatives to achieve same thing

  • rate this
    -1

    Comment number 34.

    This is a GREAT IDEA.
    But we should be doing this here!
    These "spivs" and speculating traders/hedge funds in the City should NOT be trading like this for their own personal gain!
    This is what has been happening in the last week here in the UK adding to woes of people's pension funds and personal wealth.
    Totally disgraceful.
    Osborne and Cable need to get off their backsides and do something!

  • rate this
    +3

    Comment number 33.

    I will not pretend to know alot about the stock market, from a moral stand point I would say that this practice should be banned permanently.
    more damage to the economy has been done by the Stock market traders and the politicians, than the rioters in London could ever of achieved. I feel that the Stock market traders and the politicians have not been properly punished for what they did.

  • rate this
    +6

    Comment number 32.

    Rest assured that the market will soon come up with another instrument that will all but mimic the 'short selling' that, to some sounds so abhorrent.
    In the meantime, this may provide a level of false comfort amongst some that a more powerful control is being deployed against bankers.
    Like it or not, investment banking is the most adaptable industry in the world.

  • rate this
    +1

    Comment number 31.

    it's an insidious practice. It seems like such a simple and obvious way to manipulate price. Rather than have a share price rise and fall on the merits/performance of a company, short-sellers manipulate prices, because they can.Share prices would eventually find their correct levels based on the basic principle of demand for the share.

  • rate this
    +1

    Comment number 30.

    @#16 Mahesh Ashra

    The 2 examples you gave are completely different to each other. One borrows stock, sells it and has to buy it back to pay up. The second 'borrow's stock and sells it on. If the shop keeper doesn't manage to sell, he still has to pay up for his stock.
    Most commentary I've read on this practice says it promotes volatility without providing any real benefits to the market.

  • rate this
    +1

    Comment number 29.

    Gambling to make a loss, is same as sporting event fixing, ensuring even the poorest and most unfit can win. I question what happens if this style of buisness becomes one affecting a nations freedom to trade and do buisness in the world? Is this just another back door method similar to Hitler? Next, will be China, or Russia, taking over all finacial assettts of USA, UK, and making them bankrupt.

  • rate this
    +16

    Comment number 28.

    banned for 15 days? Good grief. What about a permanent, world wide ban? That'd make much more sense...

  • rate this
    +3

    Comment number 27.

    Mahesh - that's wrong. Short-selling drives the prices down. That's the point. at a given point the shorter buys back the shares, the price rises, the short-seller makes his profit through price manipulation. As opposed to investing in fundamentally sound businesses, and watching it grow. It's why governments have banned it.

  • rate this
    +2

    Comment number 26.

    French banks assets in Italy $507 billion.

    I reckon I would sell French bank shares as well.

  • rate this
    +3

    Comment number 25.

    A very good idea. The City is nothing more than a beting shop.

  • rate this
    +10

    Comment number 24.

    Finally! Having people with a vested economical interest in destroying a perfectly viable investment isn't great for society.
    While there are some positives to short selling (liquidity, market correction, etc), they are massively outweighed by the scale the destruction wrought by it.

  • rate this
    +3

    Comment number 23.

    and I wonder if the short-sellers will now turn their attention to the countries where short-selling isn't banned?

  • rate this
    +4

    Comment number 22.

    The one thing that does intrigue are the analysists. Company A makes a 10 million profit for the current quarter, a 5% increase over the previous year. The company stock is sold down Why? the analysists predicted a 12 million profit. Thus people are buying & selling on the analysists thumb suck rather than the company results. This example just shows that the analysts got it wrong yet again.

 

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